The Irksome Cellphone Industry

Published 11:32 AM ET Thu, 23 July 2009
Updated 12:08 PM ET Tue, 3 Aug 2010
The New York Times

AP

Never let it be said that Congress never did anything for you.

In recent weeks, the Senate Commerce Committee has been holding hearings about handset exclusivity. That’s when a phone maker (like Apple ) offers a particular model (like the iPhone) to a carrier (like AT&T ) exclusively for a period of time (like five years).

Come to think about it, that example — the iPhone — is pretty much the only one anybody cares about. These aren’t handset-exclusivity hearings; they’re “Why can’t we have the iPhone on Verizon ?” hearings.

Look, it’s great that our elected officials are looking out for us. The last time Congress got involved, we wound up with phone-number portability, meaning that you can keep your number when you switch phone companies. That’s unequivocally a good thing.

But the exclusivity point is not such a slam-dunk. Sure, everybody would love a Verizon iPhone. But there are some valid arguments against banning exclusivity deals altogether.

First of all, there are two different cell network types in this country: the AT&T/T-Mobile type (called GSM) and the Sprint/Verizon type (called CDMA). Creating a Verizon iPhone isn’t just a matter of signing a few papers. It requires new engineering. It takes time and resources.

Second, you could argue (as some of the carriers at the hearings have) that exclusivity arrangements are actually good for innovation. Look at Visual Voicemail, which displays your voicemail list so you can get to them in any order, without being held hostage to your carrier’s prompts. That’s a very cool iPhone breakthrough that required Cingular (the iPhone’s original carrier) to make special changes to its network — collaboration that probably wouldn’t have happened if Cingular hadn’t had the incentive of exclusivity.

Above all, though, you’ve got to wonder why, if Congress has time for things like cellphone gripes, it’s barking up this particular tree. Frankly, there are many other, much more whopping things that are broken, unfair and anticompetitive in the American cellphone industry.

If I were on the Senate Commerce Committee, I think I’d start with things like these:

TEXT-MESSAGING FEES Why has the price of a text message gone to 20 cents, from 10, in two years? There was no big technology shift. There was no spike in the cost of electrons.

And speaking of anticompetitive: Isn’t it a little fishy that all four big United States carriers raised their text-message fees at essentially the same time?

Furthermore, why do text messages get special premium treatment at all? Why are e-mail messages (which require much more data) included with basic Internet service, but text messages require either a per-message fee or a separate package?

The carriers can’t possibly argue that transmitting text-message data costs them that much money. One blogger (http://bit.ly/gHkES) calculated that the data in a text message costs you about 61 million times as much as the same message sent by e-mail.

Give or take.

DOUBLE BILLING In Europe, you’re billed only when you place a cellphone call — not when you answer one. And you’re billed only when you send a text message — not when you get one. In this country, that’s how it’s always been for landlines, too.

Somehow, though, we’ve let the cellphone industry get into the habit of billing both of us. When I call you, a chat that eats up 10 minutes of my airtime allowance also eats up 10 minutes of yours. A text message that costs me 20 cents also costs you 20 cents.

Hello, Senator?

THE SUBSIDY GAME Existing iPhone 3G owners went ballistic when they found out that AT&T would make them pay $400 for the new iPhone 3GS. That is, they’d have to pay $200 more for the phone that was costing new customers only $200.

Their anger was misplaced, though. They didn’t understand how the American cellular subsidy game goes.

Turns out a “$200” iPhone 3GS does not really cost $200. AT&T buys the iPhones from Apple for a lot more than that.

The $200 is just your down payment; you pay off the rest through the remaining months of your two-year contract. (This is not unique to the iPhone. Almost all cellphones in this country are subsidized like this.)

In other words, if you bought an iPhone 3G last year, you’re still paying it off. AT&T needs to recoup what it paid Apple for your old iPhone in the first place, thus the $200 penalty.

Seems fair, right? It is — up until the day you finish reimbursing your carrier for your phone. Maybe that happens in the eighth month of ownership, maybe in the 14th month. But at some point during the two years, you’ll have finished repaying the subsidy.

Where's the outrage?

And here’s the part you can legitimately get angry about. If your monthly fee includes payment for the phone itself, how come that monthly bill doesn’t suddenly drop in the month when you’ve finished paying off that handset?

INTERNATIONAL CALLING Dear cellphone-carriers: Using Skype or iChat or Google Voice, I can place a crystal-clear computer-to-computer overseas call for nothing. Chat with China, or gab with Greenland, for hours, for free.

Or if I want to call phone to phone (instead of computer to computer), I can sign up for Google Voice or Skype Out, where I’ll pay 2 cents a minute to call China.

Why, then, am I still billed an astonishing $1.50 to $5 a minute to call these countries from my cellphone?

Surely the zero-cost technology that’s available to Skype and Google is also available to the world’s cell carriers. In other words, there’s no practical reason that cell carriers (ours and the overseas ones) should charge so much — only a greedy reason.

15-SECOND INSTRUCTIONS This one makes me crazy. When I call to leave you a voicemail message, the first thing I hear, before I’m allowed to hear the beep, is 15 seconds of instructions. “To page this person, press 5.” Page this person!? Oh, sorry, I didn’t realize this was 1980! “When you have finished recording, you may hang up.” Oh, really!? So glad you mentioned that! I would have stayed on the line forever!

And then when I call in for messages, I’m held up for 15 more seconds. “To listen to your messages, press 1.” Why else would I be calling!?

(Yes, there are key-presses that can bypass the instructions. But they’re different for each carrier. When you call someone, you’re supposed to know which carrier that person uses and which key to press? Sure.)

Is this really so evil? Is 15 seconds here and there that big a deal? Well, Verizon has 70 million customers. If each customer leaves one message and checks voicemail once a day, Verizon rakes in — are you sitting down? — $850 million a year. That’s right: $850 million, just from making us sit through those 15-second airtime-eating instructions.

And that’s just Verizon. Where’s the outrage, people?

AND THE REST OF IT There are plenty of other gripes, but many are beyond the carriers’ control. For example, everyone hates dead spots, but they’re often in communities that fight to block the installation of ugly towers.

Everyone hates caps on the amount of data you can send each month (for example, 5 gigabytes). But caps are reasonable hedges against people who abuse the system (distributing videos illegally, for example).

That leaves plenty of things that Congress can and should investigate.

Right now, the cell carriers spend about $6 billion a year on advertising. Why doesn’t it occur to them that they’d attract a heck of a lot more customers by making them happy instead of miserable? By being less greedy and obnoxious? By doing what every other industry does: try to please customers instead of entrap and bilk them?

But no. Apparently, persuading cell carriers to treat their customers decently would take an act of Congress.

David Pogue is a columnist for the New York Times and contributor to CNBC. He can be emailed at: pogue@nytimes.com.